CLIENT EXPOSURES: THE HYDRA-HEADED BEAST

CLIENT EXPOSURES: THE HYDRA-HEADED BEAST

Risk Managers’ Forum

Teamwork is a byword of effective risk management

Greek mythology informs us that Hercules had a significant problem when attempting to slay the hydra-headed monster that was wreaking havoc in the ancient world: Every time one of its heads was severed, two more grew in its place. This same problem is faced by independent agents, risk managers, and company underwriters when dealing with exposures today.

From providing the right coverages to developing appropriate risk control and financing techniques, we all rely on information that is diverse, dynamic, and data-driven. And just when you think you’ve got it covered—just when you think you’ve provided underwriters everything they need to get the fairest pricing available, given the exposure—something changes! Worse, and more often, you discover something that you should have known but didn’t know to begin with.

So how do you slay this beast?

There is simply no substitute for a risk management information system (RMIS), or for using it correctly to consolidate information regarding property values, as well as claims, policy, and exposure information. The data being input into these systems must be timely, accurate, and have the right data points.

From the corporate risk management perspective, when the environment is complicated and touches several departments,it makes sense to invite your underwriters to a meeting to discuss process, systems, and therisk mitigation techniques that are being used.

That brings up more hydra heads. Sometimes loss data is easier to obtain from a company that manages its data within a RMIS system, as opposed to requesting it from a TPA. For example, sales and wage data is more usable when it arrives in a form that can be uploaded into a RMIS system at the same time as loss data.

Just because you can upload something, however, does not always mean that it is accurate or up to date. For example, consider COPE (construction, occupancy, protection, and exposure) property data. Are the building values current? Have there been expansions, renovations, remodels, or additions, such as green energy? That data is important, as is the information regarding construction and occupancy. But too many agents and risk managers do not place appropriate emphasis on exposure, and this is exactly where the monsters can lurk in the shadows and cause serious damage.

One of the biggest problems with exposures is that your identification process has to examine the neighborhood, and then the wider world, and there are a lot of monsters hiding out there. Worse, some of those monsters are growing by leaps and bounds. Environmental, geopolitical, legal, social, competitive, and cyber risks are just a few examples. Has a new manufacturer moved into the neighborhood? Welcome it, by all means, but if it manufactures explosives you might want to make a note of that. Less dramatic, a new car dealership will significantly increase the traffic on the neighboring streets. There are countless examples in a single city block, neighborhood, county, state, region, country, and world, and all of them can affect your clients’ exposures.

The bottom line is: We’re all in this together. Hercules may have received top billing for his heroism, but he had plenty of help from his nephew. Team-work is a byword of effective risk management.

Although the following example comes from my experience as a risk manager in the retail grocery industry, the collaborative aspects are applicable to the broader risk management and insurance community. All you have to do is see where you fit in this scenario or the countless other situations that arise every day in every industry.

From the corporate risk management perspective, when the environment is complicated and touches several departments, it makes sense to invite your underwriters to a meeting to discuss process, systems, and the risk mitigation techniques that are being used. Let’s say that a claim went into excess layers. A meeting with the excess underwriters and a client’s legal, purchasing, and risk management personnel provides an excellent opportunity to discuss changes that have been or could be made to improve your program (sourcing, inspecting, standard operating procedures, auditing, and so on).

Similarly, in terms of product movement and sales related to products where the carrier has a higher risk exposure (pharmaceuticals, nutraceuticals, perishables, etc.), corporate risk managers must work with other key players who can answer questions related to these products. What are the quality standards and controls? What insurance requirements are in place for different vendors—a certificate compliance program, or solid contracts with indemnification and hold harmless agreements? Has legal identified any contract issues with specific vendors that might have changed from the previous contract review? What changes have occurred in the marketplace or with competitors related to these products, and what new considerations should be addressed?

I’ll bet many of you are thinking, “What about business interruption during the flood (or hurricane, or other natural disasters that might occur in your area of the country), what about those new neighbors, what about the study published in another country that shows that one of our best-selling nutritional supplements is a hoax?” What about this, what about that, and what about the other? And what about, “What if we had a computer hack/leak/breach and some of those details about the excess claim that we don’t want out in the public sphere suddenly became front-page news?”

In any industry, one of the biggest concerns these days is cyber/network issues, and this hydra head is one of the sneakiest of them all. That’s because it morphs constantly. Remember how I said that a good RMIS system is crucial? I stand by that only if you (or our client) intend to appropriately protect the data that is in the system. If you (or your client) are not protecting data, collecting the wrong kind of data, and not using current best practices when securing, retaining, and/or destroying data, the “what if” becomes a question of when.

In truth, few of the questions I have posed can be addressed in a single article, or even in a book. These questions, however, are posed with the intent of illustrating three points:

As we teach in the Certified Risk Manager (CRM) program, risk identification is the most important part of the risk management process. That’s because a risk cannot be analyzed, controlled, financed, or administered unless it is first identified.

Exposure analysis is a team effort, whether you are an agent insuring a business just down the street or the risk manager for a Fortune 500 company. The basic principles apply across the board and around the world.

Practical risk management and insurance education is essential because the stakes have never been higher for you, your agency, or your clients. Even Hercules had to know when, where, and how to strike.

We live in a fast-changing world where the “what-ifs” change every day. The monster keeps growing new heads, and, unlike in a mythical story, we will not be able to slay it. From a risk management perspective, there should be no illusions about that. What you knew last year may help—or hinder—the decisions you make this year.

You have to adjust and revise your strategies within the context of solid risk management principles. The best way to do this is by asking good questions, consulting the right people to answer as many of those questions as you can, and working together to implement a solid plan.

The author

Monique Vale was involved with a variety of risk management functions at Whole Foods Market for ten years, serving in several positions that included risk analyst and global senior coordinator of risk management. In her most recent position, she oversaw all aspects of insurance planning and purchasing, broker relations, claims submission, and RMIS and certificate management. She earned the Certified Risk Manager (CRM) designation i

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